World of Regional Distribution of Comics

After the first retailer meeting that I set up with the Marvel executives at the 1979 San Diego Comic-Con, life settled into a fairly predictable routine. Despite the changes in ownership of my distribution company that were forced upon me by Phil Seuling that I mentioned a few columns ago, the distribution company I originally set up continued to grow. In fact, when my wife, Nanette, took over the company (and changed the name to Alternate Realities Distributing, Inc.) it grew even faster than when I was in charge. "Growth" is relative, however, as she was was adding a steady one or two new accounts per month. While adding a couple of accounts per month was a substantial gain in a sparsely populated region like the Denver area, it was inconsequential as compared to the growth of the new comics distributors who were emerging in the more densely populated portions of America. In the longer term, this factor proved crucial to where the distribution of comics is today.

To expand upon that thought, it is important to recognize that the distribution of any mass consumer product is a function of economies of scale. When you are running a distributorship it takes very little extra effort to sell 1,000 copies of an item, versus 100. You might have a bit more in handling and freight charges, but the costs of creating your catalog, placing your orders, and maintaining your back room paperwork operations remain relatively static. In effect, every additional customer you gain simply helps defray fixed costs that were already required to maintain your existing base of operations. This places an extraordinary incentive before any distributor to encroach upon the territories and customers of their compatriots.

It was my failure to clearly understand this basic tenent of distribution that caused me the greatest difficulties during the 1980's. While I have always been a very competitive businessman, my belief when I went to Marvel in 1979 seeking an expansion of their distribution base was that a new system would quickly evolve based upon the same sorts of semi-exclusive regional territories that existed among the 500+ newsstand distributors in business at that time. Given that my mentor in my earliest days of owning Mile High Comics was one of these newsstand distributors, I suppose my naivite' was not completely unreasonable. Emil Clausen was a great businessman, but he was also a gentleman. He had a "gentleman's agreement" with the other distributors surrounding him to not cross certain geographic boundries to poach customers, and those agreements stood for nearly 50 years. By the early 1980's, however, that generation of gentlemanly newsstand distributors was fading away. Replacing them were a new breed of national corporately-owned distributors who ruthlessly squeezed smaller regional distributors until they sold out to them. This has led to a consolidation so severe that I have heard that that the remaining population of newsstand distributors servicing all the stores in America may already number less than 50.

The semi-utopian vision I had for a world of regional distribution of comics faded away almost before it ever began. While the initial 19 or 20 Marvel Direct Market distributors that blossomed after Marvel opened their distribution in the Summer of 1979 were primarily regional in scope, Phil Seuling's Seagate Distributing still had a nationwide (and through Titan in London a worldwide) operation. The first company to challange Seagate in it's nationwide role was a new company called IrJax Distributing. You may recall from my earlier columns in this series, that the Schuster family (brothers Hal and Jack, and father Irwin) did much to break Phil Seuling's distribution monopoly by filing an anti-trust lawsuit against all the major publishers, and Seagate, in the Fall of 1978. They did not file this lawsuit for altruistic reasons. They saw the substantial profits being generated by Seagate, and they wanted a piece of that rich pie. Since the original Seagate contract with the publishers clearly gave exclusive benefits to Phil that were not available to other potential distributors to comics shops, the IrJax lawsuit was a slam-dunk win for them.

After IrJax won the lawsuit through a series of settlements, they immediately set up a linked chain of comics distribution warehouses up and down the Eastern seaboard of the USA. They grew the sales volume of these new comics warehouses by offering ridiculously generous discounts to even the smallest of potential accounts. There has been much speculation on how they funded setting up these new warehouses, with the proceeds of their lawsuit settlements clearly playing a major role. There was also, however, a certain gamble they undertook in trying to quickly scoop up all the comics specialty shop distribution in the various regions they invaded. In essence, they needed to capture almost 100% of the business in any city in which they set up a warehouse. If they suceeded in gaining that massive market penetration they could totally control that area indefinitely, and presumably then gradually cut back on their overly-generous discounts. In the meantime, however, those massive sales numbers would give them significant leverage with the publishers. One way, or another, the Schusters were convinced that if they controlled enough of any given publisher's print runs, that they could then negotiate even better discounts for themselves.

For several different reasons, the Schuster's plans ultimately fell apart. Or at least they did for the Schuster's. When they went out of business in 1982, their chain of distribution warehouses were acquired by their neighbor down the road in their hometown of Baltimore, Maryland. Where the Schuster's were visionary, Steve Geppi was capable. He took the Schuster's ideas and implemented them with brilliance. Skipping ahead 15 years in this story, Steve's company, Diamond Comic Distributors, ultimately won the very race that the Schuster's began. By 1997 he was the last Direct Market Distributor. Ever since then he's been cutting steadily cutting discounts and benefits for comics retailers, and his staff has been ruthlessly squeezing publishers for better deals. I'm sure that the Schuster's are more than a little pleased that Steve Geppi proved that their plan was ultimately a sound one, even if they were not personally able to pull it off. Exactly how Steve Geppi won the comics distribution war will be the subject of several of my columns to come.